Abstract

An Approach Towards Determining Customer-specific Financing Solutions Using the Example of Coupled Sales and Financing Contracts

Customized business models are critical for the success of companies that offer coupled sales and financing contracts in highly competitive markets. The aim of this article is to compare two financing solutions based on a quantitative model and to determine the solution that is advantageous for both sides (company and customer). Therefore the conventional annuity loan with a fixed amount of instalments is compared to a simple loan repayment with a totally variable amount of instalments. The customer-specific loan repayment is advantageous for both sides from integrated risk and return aspects: the risk emanating from coupled sales and financing contracts can be reduced, both for companies (in terms of the merchandising risk of their products and the risk of high loan defaults from the financing transactions) and for customers (in terms of default risk). The practical application of the model is exemplarily illustrated by using a real world dataset of a large brewery.